What’s Next in Beauty: 7 Beauty Industry Predictions for 2017 and Beyond

This list of beauty industry predictions is a must-read for anyone who works or wants to work in beauty. This includes aspiring beauty entrepreneurs and influencers. But first, let’s recap the key events of 2016.

BIG MOMENTS IN BEAUTY FROM 2016

2016 was a very big year for beauty and personal care. According to NPD, beauty sales in North America reached $40 billion, a 7% increase versus 2015. This includes Mass and Prestige beauty brands.

For retailers like Old Navy and JCPenney, beauty became a reliable source of in-store foot traffic.

Indie brands were on fire and we saw some of these brands acquired by Big Beauty companies. As a reminder, some of the key transactions were: IT Cosmetics by L’Oréal, Too Faced Cosmetics by Estee Lauder, and Laura Mercier by Shiseido. And indie beauty won’t let up. There seems to have been a new brand born every minute.

NYX and ELF expanded their reach with new freestanding boutiques across the country. Then, of course, ELF had its IPO in September.

And finally, at the end of the year, a new beauty corporation was established with Glansaol. Laura Gellar and Julep fall underneath the Glansaol umbrella.

Whew! LOTS of activity in 2016. In fact, there was so much that you wouldn’t think that 2017 could top it. Yet, this is just the beginning. It’s only February and already the industry has been on full tilt. So, I am putting a stake in the ground. These are my predictions for the big events I expect to take place in the beauty industry in 2017 and beyond. Warning: there is going to be a lot to cover so I will be presenting my case in a three-part series.

2017 BEAUTY INDUSTRY PREDICTIONS

Big Beauty Companies Will Race to Acquire Popular Indie Brands

This shouldn’t surprise anyone and it’s really not new within the industry. But this is a different, more dynamic era. Today’s beauty consumer has an insatiable appetite for new products. She has her pick of the litter. This consumer is not limiting herself to well-established brands like Maybelline and Clinique. These consumers are happy to discover new, underground, niche, and emerging brands. Today, brands like Kopari Beauty, CoulorPop Cosmetics, Tata Harper Skincare, and Beauty Bakerie Cosmetics are also part of her consideration set.

When…how did this happen? In the absence of big media budgets, indie brands have creatively leveraged social media, popular influencers, and user-generated content to develop brand awareness. In addition, direct-to-consumer e-commerce has reduced traditional barriers to entry like distribution at key retailers. In 2015, the Fung Business Intelligence Centre estimated beauty to be a $400 billion market globally with $300 billion “up for grabs”. Thus, more entrepreneurs are seeking to strike gold in the beauty space. And there’s a worldwide audience eagerly waiting for what’s next.

So what has this meant for Big Beauty conglomerates like L’Oréal and The Estee Lauder Companies? Heritage brands like Olay, MAC Cosmetics, and Lancôme have solid equity and they are here to stay…for now. But, the playing field has become increasingly competitive and more fragmented. There are so many beauty brands in the marketplace. This makes it harder for heritage brands to capture and hold the attention of consumers. This is a marked difference from five to 10 years ago. Indie beauty has been a clear threat to the establishment. These disruptors feel fresh and exciting thus making established brands appear old by comparison. Also, indie brands are establishing industry trends. This includes everything from ingredients to how products are marketed and sold.

Big Beauty companies can’t ignore the impact of indie beauty. These brands are a challenge to the total market share of larger companies like L’Oreal and Coty. So, if you can’t BEAT ‘em, BUY ‘em. This appeared to be the mantra in 2016 and will continue throughout 2017. Big Beauty companies can drive inorganic growth via key acquisitions. As such, we’ll continue to see more consolidation via acquisition throughout 2017. Heck, Coty kicked off January by purchasing a 60% stake in Younique for $600 million. L’Oréal, Estee Lauder, LVMH, Coty, and Shiseido will be in a race to gobble up the most promising and buzz-worthy brands.

New Beauty Conglomerates Will Emerge

Let’s face it, L’Oréal and Estee Lauder can’t buy all of the indies. Yet, investors are still looking for a return on their investments. My prediction? High potential indie brands will come together to form new multi-brand beauty companies. In fact, Glansaol is a new such company. Their announcement last year made me regret that I had not posted this article sooner. Every indie brand doesn’t want to be acquired and every indie brand won’t be acquired. That’s impossible. However, as part of a larger beauty company, brands can leverage synergies, increase buying power, and save on cost of goods. I’ll be waiting to see which other brands Glansaol will acquire. Also, ELF Beauty went public last September with an IPO. I am curious to see if this newly public company will become a house of many brands in 2017.

A New Normal With New Mega Brands

Yes. I said that Maybelline, Estee Lauder, and other heritage brands will still be big brands in the near term. However, 2017 will continue to establish the foundation for a new normal. This new normal will include new megabrands. The rapid growth and expansion of NYX is an example. The new brands have the buzz. They’re targeting enthusiasts as well as under-served segments. They’re willing to take more risks and perhaps they’re allowed to because they are smaller. Indie brands are finding new ways to innovate in the beauty space. They’re establishing the trends that heritage brands are forced to follow. But most importantly, these brands feel new and exciting and innovative. Today’s new brands have a halo. For some, it’s deserved, while others are simply riding the wave.

I expect the best of today’s most buzzed about indie brands to become mega brands within the next 10 years. However, I am not ready to equate “mega” brands with “billion-dollar” brands. With so many players in the industry, there is significant fragmentation. Therefore achieving the billion dollar status of a brand like L’Oréal Paris will be very difficult. Instead, these megabrands will grow by expanding beyond their respective niches. This means innovating across multiple categories and for broader audiences. For instance, a facial skincare brand might extend into body care, cosmetics, or hair care.

Of course, becoming a mega brand happens over time. Thus, this will be an ongoing trend to watch. The brands most likely to get the “mega-brand” treatment will be the ones acquired by the Big Beauty companies. The big companies have the resources, research, and expertise to generate new products faster. Ultimately, these will become the heritage brands of the future.

This concludes part one of my Beauty Industry Predictions for 2017 and Beyond. Let me know what you think in the comments. Stay tuned for the next installment next week.